Financial Services, Latvia, Legislation, Markets and Companies, Taxation

According to the Constitutional Court, Section 6 of the Solidarity Tax Law, which lays down the solidarity tax rates, goes against Article 91 of the Constitution, which states that "All human beings in Latvia shall be equal before the law and the courts. Human rights shall be realized without discrimination of any kind." Therefore the contested section of the Solidarity Tax Law will become invalid as of January 1, 2019. By that time, the government will have to find an alternative solution so as not to affect state budget revenues.

The Constitutional Court's ruling says that the solidarity tax is a new kind of tax, which means that it cannot be defined as social insurance contributions. The Constitutional Court believes that the solidarity tax had been endorsed in a correct manner, in accordance with Saeima Rules of Procedure and in consultation with social partners and experts. Therefore there are no grounds to believe that the Social Tax Law had been rushed through parliament, as the claimants contesting the solidarity tax had said.

In theory, any tax may be considered a solidarity tax - that is, residents make tax payments to the best of their ability, in order to ensure solidarity in society and contribute to their fellow citizens' welfare.

The Constitutional Court's ruling cannot be appealed.

Section 6 of the Solidarity Tax Law stipulates that the solidarity tax rate conforms to the rate of mandatory contributions laid down in accordance with Section 18 of the Law on State Social Insurance.

Section 18 of the Law on State Social Insurance describes mandatory and voluntary contribution rates. Specifically, if an employee has been insured for all types of social insurance, the mandatory contribution rate is 34.09 percent from which an employer pays 23.59 percent and an employee 10.50 percent. It also stipulates that the Cabinet determines the mandatory contribution rate for persons subject to mandatory social insurance and the distribution thereof according to the types of social insurance. The voluntary contribution rate is the rate stipulated by the Cabinet for pension insurance, disability insurance, maternity and sickness insurance, and parents' insurance.

As reported, the Constitutional Court opened the case after receiving 37 private individuals' claims that said the solidarity tax was unconstitutional.

The tax on high salaries, or the so-called solidarity tax, came into effect on January 1. The solidarity tax is levied on the part of highly-paid employees' salaries exceeding the ceiling for mandatory social security contributions.